YOUR STRATEGY FOR THE TALENT WAR: Big corporations are competing with start-ups for the smartest, most creative staff - now seen by both as their most vital asset. Whether chasing or offering rare skills, the spoils are rich, says Matthew Lynn

YOUR STRATEGY FOR THE TALENT WAR: Big corporations are competing with start-ups for the smartest, most creative staff - now seen by both as their most vital asset. Whether chasing or offering rare skills, the spoils are rich, says Matthew Lynn - As a way

by MATTHEW LYNN
Last Updated: 31 Aug 2010

As a way of marking the creation of the world's largest drugs company, it was hardly edifying. When shareholders in Glaxo Wellcome and SmithKline Beecham gathered in July to approve the merger between the two companies, shareholders took the opportunity to complain about the pounds 15 million share option package given to the chief executive of the new entity, Jean-Pierre Garnier.

'That is a meaningless number,' Sir Richard Sykes, chairman of Glaxo Wellcome, who will hold the same title with the new company, told his shareholders that day. 'The stock options are absolutely worthless on day one. If the share price rises, he'll benefit and you'll all benefit. If it goes down, he'll be upset and so will you.'

Garnier is not the only high-profile chief executive in recent months to have taken some heat from his shareholders over an extravagant remuneration package. Chris Gent, the boss of Vodafone AirTouch, who steered his company to becoming Britain's largest, also took flak from shareholders for the pounds 10 million bonus he pocketed for successfully completing its takeover of Germany's Mannesmann. In that instance, a significant number of shareholders voted against the bonus.

And yet shareholders actually knew about those awards, and had the opportunity to pass judgment. In protesting, many of them looked peculiarly narrow-minded and old-fashioned. Top pay has certainly risen: a survey late this summer showed that bosses' pay improved on average by 16.5% in the past year. But lots of other fantastic and extravagant bonus and option packages disappear beneath the radar screen because they are not awarded to members of the board - they are awarded to fairly ordinary staffers, line managers and employees.

'The kind of personalised, generous packages that used to just go to chief executives of big companies are now becoming commonplace throughout companies,' observes John Knell of the the Industrial Society, the author of a recent report on the free worker.

In other words, we are all fat cats now - the lavish rewards once showered on a few chief executives are now becoming commonplace. It is not just a handful of corporate superstars who can expect their egos to be constantly massaged by the human resources department and their services to be contested by a series of potential employers.

The trend is not just restricted to this country and the US, the countries we think of as the most willing to push up employees' pay.

It is also happening in continental Europe. According to a survey by headhunters Spencer Stuart, the 250 board members of Germany's 30 largest companies have seen their pay rise by 40% in the past two years. If it is happening at the top, you can be certain it is happening lower down as well - indicating that the race to lock up key employees is just as intense in Germany.

But why has the war for talent intensified? And what are the best strategies for companies and workers to exploit the shortage of skilled people? There are three key reasons why finding the right people for the right job has become harder than at any time in most people's working lives.

The first is to do with some old-fashioned economics. We are now back at the full employment that existed between the second world war and the early '70s. There are a few isolated regions in Britain where unemployment is still a problem, but anyone who wants a job can get one just about everywhere else (whether it is a good job is a different story). There is a huge demand for workers - and not enough people around to fill all the vacancies.

A second reason is the booming new economy. Despite recent high-profile crashes such as Boo.com and ClickMango, the internet has created a flood of new, rich, well-resourced start-ups, all hungry for talented people.

It has created intense skills shortages in crucial areas; technologists and web designers can write their own contracts, but so can plenty of other workers who don't know one end of a browser from the other, such as intellectual property lawyers, admen and writers. Multinationals used to draw the best people automatically. Now they have to compete with start-ups.

A third reason is that intellectual property is now the most important asset of all. In other eras, the main economic contests were over land, oil or other mineral rights, or over factories and other assets. In the information-rich digital economy, ideas, brains and people are the most valuable assets. It is not surprising that companies fight over these assets as fiercely as they once competed to find new oil wells or to control steel mills. 'Executive talent has been the most undermanaged corporate asset of the last two decades,' argues McKinsey partner Libby Chambers in a recent McKinsey Quarterly article on 'The War for Talent'.

Not only are people a lot more valuable to companies, they are also more aware of their value. 'There is a new hyper-opportunism among employees,' says Knell. 'The best and brightest are no longer looking to stay with an employer for long.'

Examples of people jumping from one employer to another, and swapping a big pay packet for an even bigger one, are legion. So too are examples of companies going to ever greater lengths to sign up the people they want. Amazon.com's founder, Jeff Bezos, was reputedly interviewing a person he wanted on the team who pointed to a dollars 150 yo-yo as an interesting example of the range available on the site. Bezos immediately bought him one.

Nortel Networks, the US technology company, sends recruiters to baseball games and Jimmy Buffett concerts to meet other fans and see whether they can hire them. Its reasoning? Nortel thinks the best engineers like sports and country-and-western music.

In Britain, companies haven't yet resorted to sending scouts to West Ham games or Metallica gigs, but they are willing to bend traditional rules. One British dot.com paid for an operation on the father of a person they wanted to hire. Andersen Consulting will this year offer its UK graduate recruits signing-on bonuses of pounds 10,000 in its quest to attract the best candidates. And according to the Association of Graduate Recruiters, one in five of the UK's top recruiters pay 'golden hellos' to attract candidates.

Barrie Dennett, of strategy consultants ADD Resources, observes that in his industry the battle to sign up talented people is intensifying all the time. 'The explosion in the number of dot.com companies has drawn away a lot of people who might otherwise have gone into consultancy,' he says. 'In our industry, the war for talent has become frightening. It is very fierce. There is far more demand for people than there are people available.'

One consequence of the war for talent is that staffers are becoming a lot more demanding. A decade ago, it might have been only a few pop stars and actors who could demand pink smarties in their dressing rooms. Now, such is the shortage of the right people, even the trainees can demand that the company change its working environment or the terms of a contract to suit their own idiosyncratic preferences. 'People have become a lot more choosy,' notes Charles Kirwan- Taylor, in charge of human resources at Credit Suisse First Boston. 'They want to be able to select the right job with the right organisation.'

Take the recent 'strike' at Salomon Smith Barney, the leading but very traditional Wall Street stockbroker. Earlier this year, its junior analysts - note junior - posted a series of demands of their bosses. In Wall Street terms, that was the equivalent of the storming of the Winter Palace. The analysts, who earn around dollars 60,000 to dollars 70,000 a year, weren't demanding more money but more generous meal allowances, team dinners after closing deals, and their own corporate chargecards. More significantly, they wanted to swap the traditional Wall Street uniform for chinos and polo shirts. In part, this reflects the new economy's influence on the old; most of the billionaires whom Salomon Smith Barney analysts might be expected to admire wear chinos rather than suits, so it is not surprising they should want to emulate them. But it also reflects a spirit of corporate rebellion and a determination to resist the imposition of a narrowly defined corporate culture and lifestyle.

Without the knowledge that their skills were in short-supply, these analysts would not have felt empowered to make their protest. Salomon backed down (the company was so eager to appease the rebels, it even tossed discount vouchers for Banana Republic into the package). Many other big financial conglomerates have also succumbed to casual dress. Morgan Stanley Dean Witter's chairman Philip Purcell recently told his shareholders: 'We cannot attract the best minds with a formal dress code. We've gone from casual Fridays to casual IT, to casual all the time.'

The right to wear chinos is relatively trivial. In a climate of empowered employees, many are going a lot further. 'More and more people are demanding and being offered flexible contracts,' says Dennett. 'If they want to go off and paint in the Dordogne for three months every year, increasingly firms are having to say 'fine'.'

That is partly a response to the intense pressure that many employers put on their staff - in part because they have to make sure they are maximising the revenues from every employee to justify the big sums they are paying them. The Law Society has warned that, with the big salaries now being paid even to junior lawyers, there is a danger of people being massively overworked. One law firm it mentioned had cubicles that staff could sleep in overnight to save 'wasting time' on going home at night. Another set up a dentist's office on the premises to stop staff wasting time on trips to get their teeth checked. 'There is an employment brand that people are going to have to be very careful about cultivating,' says CSFB's Kirwan-Taylor.

One point worth remembering, however, is that only a relatively small elite is lucky enough to have companies bidding up the price of their services. 'The war for talent doesn't go very deep at all,' argues Knell.

'It only impacts about 10% of the workforce, an elite segment of the workforce.' The new, information-rich age may be empowering a few, but it is excluding many more people than it is including. Like all wars, the results are not always just - and the spoils are not always evenly divided.

HOW TO RECRUIT THE BEST AND KEEP THEM

1. Be flexible. If someone wants to spend Thursdays fishing, don't refuse point-blank. You are flexible for your customers; why not for staff?

2. Be generous. Trainees might seem to be asking for a lot of money, but they know the market rate. If you're not generous, your rivals will be.

3. Let your people shine. Nobody wants to be buried away in a dead-end job. Your company is a stage on which glittering talents can perform.

4. Acquire a good reputation. Lots of people know what you're like to work for - ex-staffers, customers, suppliers, rivals. Make sure they are saying nice things about you.

5. Dig deep into the organisation. Can't afford the ridiculous amount being demanded by a talented marketing assistant? Maybe someone in the post-room could do the job as well with encouragement and training.

HOW AN EMPLOYEE CAN CASH IN ON BEING IN DEMAND

1. Know the strengths of your negotiating position.

2. Get a feel of how badly the company needs your skills. If it can't take on a new contract or launch a project without you, you can ask for the earth - and get it.

3. Be prepared to say no - several times, if necessary. In a tight market, the first offer an employer makes is unlikely to be the best one. Chances are, if you turn them down, they'll be back - or someone else will be.

Put yourself in a hot sector. Become an expert in the sectors likely to grow fast: a couple of days' training can turn a mere graphic designer into a web designer.

4. Let them know that other firms are interested. Nobody wants to hire the unemployable.

5. Don't be greedy. Lots of money doesn't mean the job is right. There may be a reason for the high pay - like they're psychopaths who'll go bust next week. It might be better to get less cash and enjoy yourself more.

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